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What trade war? Record trade surplus
International trade

Foreign trade: The trade surplus rose from $4.82 billion to a record high of $5.75 billion in May. Australia has recorded 17 successive monthly trade surpluses. The rolling annual surplus was a record $42.95 billion in the year to May.

Record China trade: Australia’s rolling annual trade surplus with China rose from $48.8 billion to a record high of $51.7 billion in May. Annual exports and imports are also at record highs with the country.

Exports going gangbusters: Exports from the Northern Territory are rising at a 62 per cent annual rate while Western Australian exports are growing at a 24 per cent annual rate.

The trade data has the potential to affect the Aussie dollar so it may be important for exporters and importers. The trade data is also instructive on income flows in the economy.

What does it all mean?

• Aussies could be excused for thinking that there are no trade frictions in the global economy at present. Because from our standpoint, conditions have never been better. The monthly trade surplus is at record highs, so is the trade surplus over the past year. Australian exports to China are at record highs. So are our imports from China. Even the balance on services (such as tourism and education receipts) is strong – with a surplus recorded in trend terms in May for the first time in 15½ years.

• Australia is not just lifting exports to China. Exports to the US in the year to May were at a record high of $14.15 billion, up 22.9 per cent on a year ago. Exports to Japan were a record $57.99 billion in the year to May, up 22 per cent over the year.

• Australia won’t be getting a speeding ticket from the US though. The trade deficit with the US hit a record $18.65 billion in the year to May.

• Certainly, there is a lot to like about the economy at present. The trade surplus is at record highs; the federal budget is balanced; inflation is contained; and the record economic expansion is in its 28th year. The economy has scope to grow faster, so the Reserve Bank has cut interest rates and the government is proposing tax cuts. State and federal governments are actively rolling out new spending on social and economic infrastructure.

• Higher demand for resources, rising gold and iron ore prices and the low Aussie dollar are all serving to boost Australian exports.

What do the figures show?

International trade – May

• The trade surplus rose from $4.82 billion to a record $5.75 billion in May. Australia has recorded 17 successive monthly trade surpluses.

• The rolling annual surplus was a record $42.95 billion in the year to May.

• Exports of goods and services rose by 3.6 per cent in May (exports of goods rose by 4.3 per cent).

• Imports of goods and services rose by 1.5 per cent in May (goods imports rose by 1.5 per cent).

• Exports were up by 16.4 per cent on a year ago, while imports were up by 2.5 per cent.

• Rural exports rose by 1.1 per cent. “Other rural exports” (includes sugar and honey) rose by 6 per cent with cereals up 17 per cent while meat fell 8 per cent.

• Exports of non-rural goods rose by 5.0 per cent. Exports of metal ores and minerals rose by 13 per cent with coal up 3 per cent. But exports of metals fell by 14 per cent.

• Within imports, consumer imports fell by 0.8 per cent, capital goods imports rose by 5.3 per cent and intermediate goods imports rose by 0.6 per cent.

• Consumption goods imports were up by 1.5 per cent on a year ago, capital goods imports rose by 11.1 per cent while intermediate goods imports fell by 0.5 per cent.

• The net services accounts eased from a $3 million surplus to a $46 million deficit in May. In trend terms a net surplus on services of $13 million was recorded in May – the biggest surplus in 15½ years.

• Australia’s annual exports to China rose from $126.71 billion in April to a new record high of $129.99 billion. Exports to China are up 26.7 per cent on a year ago. Exports to China account for 35.4 per cent of Australia’s total exports – a new record high.

• Australia’s annual imports from China rose from $77.89 billion to a record $78.29 billion in May – a new record high. Annual imports were up by 17.2 per cent on a year ago. Imports from China accounted for 25.36 per cent of Australia’s total imports – a fresh record high.

• Australia’s rolling annual trade surplus with China rose from $48.82 billion to a record $51.7 billion in May.

• Australia exported a record $14.15 billion of goods to the US in the year to May and imported a record $32.8 billion of goods.
What is the importance of the economic data?

• The monthly International Trade in Goods and Services release from the Bureau of Statistics provides estimates on exports and imports of physical goods (such as coal, beef and computers) and services (such as travel receipts). The balance of goods and services (BOGS) is a narrower description of Australia’s external position than the current account estimates. The import data is a useful gauge of consumer and business spending while exports reflect global demand as well as domestic influences such as drought.
What are the implications for interest rates and investors?

• Australia’s external sector is a bright spot for the economy. We are enjoying an extended run of trade surpluses, boosting our trade income. Demand for Aussie bulk commodities and services remains solid.

• The fruits of the mining investment boom are there to be seen in exports from Western Australia and the Northern Territory. In Western Australia alone an extra $30 billion of export income has been generated over the past year. And Western Australian exports are running at the fastest annual rate in eight years.

• The Reserve Bank (RBA) Governor says “we will be closely monitoring how things evolve over coming months.” Further, rates could be cut again “if needed”. Overall, it seems likely that the RBA is in ‘wait and see mode’ on interest rates. There has been enough positive data in recent weeks to indicate that the Reserve Bank won’t rush with another rate cut.

Published by Craig James, Chief Economist, CommSec